Royal
Courts of Justice
Strand, London WC2
Friday 30th November 2001
B e f o r e:
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Claimant
- and -
Defendants
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Mr Thrower
(instructed by Fenwick & Co, 55 High Holborn London WC1V 6DX) for the Claimant
Ms Nicholson (instructed by Penningtons, Bucklersbury House, 83 Cannon Street,
London EC4N 8PE) for the First Defendant
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In late 1992 the Claimant in this action (I will call her "Miss Chan") was 26 years old. In the latter part of that year she started work for the First Defendant (I will call him "Mr Leung") as a political assistant in one of Mr Leung's ward offices. Mr Leung was at that time a Hong Kong Legislator and a Regional Council member. He was also a chartered surveyor and in business as a property developer. At that time he was aged 39.
When Miss Chan entered Mr Leung's employment he was under investigation by the Independent Commission Against Corruption for bribery during an election. In November 1992 he was charged with the offence of bribery in connection with a local government election.
In early 1993 a relationship developed between Mr Leung and Miss Chan. It was a serious relationship: he promised to marry her. But, in June 1993, Mr Leung was convicted of the offence and sent to prison for three years. He served two years of that sentence. He obtained day release in about March 1995 and his full release in June 1995.
In view of his conviction, the couple's nuptial plans had to be deferred, but in May 1995 Miss Chan went to England and found a house in Woking called Hill House, which was bought for £360,000 as the quasi matrimonial home. The purchase was in the name of the Second Defendant to the action. I will call it "Melodious". Melodious is a company incorporated in the British Virgin Islands. The shares are beneficially owned as to 51% by Miss Chan and 49% Mr Leung. Mr Leung and Miss Chan lived in Hill House as man and wife until June 1998, when Miss Chan complained that Mr Leung had attacked her. The police were called and an injunction was given excluding Mr Leung from Hill House.
Melodious was also used to buy nine properties to rent out in England. All those have now been sold and the proceeds, after expenses and after discharging the mortgages on those properties and on Hill House, is of the order of £250,000.
There are three cases before me. The main action is brought by Miss Chan against Mr Leung, originally in the Family Division but now transferred to the Chancery Division. In this action Miss Chan claims a 51% beneficial interest in Hill House and claims that there was an agreement that it would not be sold without her consent. She says that that was the basis on which she gave up her life in Hong Kong and set up home in Hill House with Mr Leung. Mr Leung says that Melodious is the beneficial owner of Hill House and that Melodious is insolvent because it owes him £640,000 in shareholder loans. That gives rise to the second case which is before me, which is a creditors' winding up petition by Mr Leung against Melodious. In the alternative if Melodious is not insolvent, Mr Leung petitions to wind it up on the just and equitable ground in his capacity as a contributory. That is the third case before me.
In the main action Miss Chan seeks an order under section 33(3) of the Family Law Act 1996 to enforce the right she claims to have to live in Hill House. Further, or alternatively, she seeks declarations as to her beneficial interest in Hill House under section 33(4) of that Act and under section 14 of the Trust of Land and Appointment of Trustees Act 1996. In the windingup proceedings Mr Leung seeks the windingup of Melodious, the sale of Hill House which is worth, I am told, about £600,000 the repayment of the loans he says he has made from the sale proceeds and the £250,000 I have referred to earlier, and a distribution of whatever is left in the proportions of 51 to 49.
In the main action Mr Leung's position is, as I have said, that Hill House belongs beneficially to Melodious; but, if Melodious is only a trustee, his case is that the purpose of the trust was to provide a home for Miss Chan and himself; that that has come to an end; that Miss Chan's occupation of Hill House should be ended; that Hill House should be sold and the proceeds distributed in the proportions 51 to 49, again after repayment of all the loans made by him.
The main witnesses in this matter were Miss Chan and Mr Leung. I also heard evidence from Mrs Samuel, who lives next door to Hill House. She gave evidence for Miss Chan.
Miss Chan was an impressive witness and a convincing one. She thought before giving her answers. Her English is not 100% fluent. Occasionally she misunderstood questions, but she did not seek to avoid them.
In contrast, Mr Leung was an unimpressive and unconvincing witness. I am satisfied that he was willing to lie if it suited his purpose. He sought to avoid answering questions. He was not even a very competent liar. He gave answers that were soon shown to be false. His evidence was shown to be false by the documentation, particularly the numerous letters which he wrote from prison to Miss Chan.
Mr Leung has given limited disclosure in this matter. He has chosen, I understand, to shelter behind the argument that the documents are not in his custody, possession and control because they belong to a Hong Kong company of which he is a 99% shareholder but not a director. That company is Kelfund Consultants Limited ("Kelfund"), which was, on the face of things, the company which developed the Wo Mei development, of which more later. But it is clear from his evidence that, though he may not have been a formal director of Kelfund, he was treated as a de facto director: in particular he was so treated by Mr CW Tai, the directing mind of GoldFace Group at a time when Kelfund was owned 50:50 by Mr Leung and GoldFace Investment Holdings Limited. In his witness statement, Mr Leung says that "the Wo Mei development, though in the name of Kelfund, was in fact controlled by Mr CW Tai of GoldFace and me".
Very recently, on 31st October 2001, Mr Leung was ordered to provide certain disclosure. Mr Leung has been able to get documents from solicitors where the client is clearly Kelfund. I am satisfied that Mr Leung could have disclosed documents belonging to his companies in Hong Kong if he had chosen to do so. There has been selective disclosure by Mr Leung.
I have no confidence in Mr Leung's evidence, and, as a general rule, I found myself disinclined to accept anything he says, unless it is either uncontroversial or corroborated. This lack of confidence in what he says does not derive merely from his performance in the witness box.
In the course of his evidence he admitted that statements in an affidavit to be made by him in the ancillary relief proceedings in Hong Kong brought by his wife were untrue. The copy of that affidavit in the evidence is unsworn, but Mr Leung has not produced a sworn copy to show that that was any different. I am satisfied that in those proceedings he was prepared to lie in his interests, as he was in these proceedings.
In his witness statement he says:
I told Miss Chan that I wanted to divorce my wife and marry her when I came out of prison. Although I wanted to set up home with Miss Chan, it wouldn't be true to say that I had a firm intention to marry Miss Chan at this time. I gave Miss Chan the impression that I did want to marry her because she was a difficult person and I thought she was more likely to go to England with me if she thought I intended to marry her.
That appears to be a clear admission of deceit. Finally, of course, he was convicted of corruption and sentenced to a significant prison sentence in Hong Kong.
It is common ground that the relationship between Mr Leung and Miss Chan developed before the prison sentence. The relationship is described in their words as that of "boyfriend and girlfriend". Mr Leung says it involved sexual relations. Miss Chan denies it. I accept her evidence.
But clearly it was a serious relationship. Miss Chan says that in about April 1993 Mr Leung asked her to marry him when the criminal trial was over; that he told her that he would divorce his wife and that after the trial they would go away on holiday, come back to Hong Kong, marry and live in a house in Chuk Kuk owned by Mr Leung which was to be Miss Chan's property. I accept Miss Chan's evidence that in about April 1993 Mr Leung did promise to divorce his wife, marry her and give her the house in Chuk Kuk. She is, as I say, a truthful witness and, as I will explain, what she says is corroborated by what subsequently happened.
The promise of the Chuk Kuk house was simply the promise of a future gift. Mr Leung could and indeed did decide not to give the house to her; but this promise is the start of the story of what Mr Leung frequently refers to as the "dream house", a dream which was ultimately realised, complete with fishpond, in Hill House, Woking.
Unfortunately, however, Mr Leung was convicted. He wrote numerous letters to Miss Chan from prison. I am told there are several thousand of translations and only a selection in the court bundle, but they comprise a large lever arch file. The letters are professionally translated from the Chinese; and I must bear in mind that I am reading what are translations. A few passages were checked by Miss Chan and Mr Leung whilst they were giving evidence. On the whole, the outcome of that check was that the translations proved to be substantially accurate.
They give the best indication of Mr Leung's real thoughts, intentions and decisions. These letters reflect the promises made to Miss Chan in April 1993. In the earliest prison letters, he was addressing her as his wife, calling himself her "loving husband". He says, "The most important thing to me is that I have found a permanent companion" (D46). By mid August 1993 (D262) Mr Leung was taking advice from a lawyer, Peter Fu, to find out what share of his assets would probably go to his wife on divorce.
The Chuk Kuk house was sold to pay for legal and other expenses in connection with Mr Leung's application for bail and his appeal against conviction and sentence. In two letters (D34 and D51) dealing with the sale of the house he refers to the "sacrifices" Miss Chan is making for him. He says in D51:
How about if I make the following arrangements after Chuk Kuk has been sold? Hang on to the $7 million (that is $12 million sale price less the $5 million mortgage) for me and it can be the foundation for our lives afterwards. I have already given the instruction to my solicitors.
In another letter (D73) he says he is worried that she may lose everything and says:
In my loneliest hour you are prepared to help with my bail and appeal...
Which I interpret as referring as not only to her work with his lawyers but also her willingness to acquiesce in the sale of Chuk Kuk to raise money for legal expenses.
As I have said, on 1st June 1993 Mr Leung was convicted and sentenced to three years in prison. Apart from the psychological and emotional problems of imprisonment he was faced with practical problems, in particular the continuation of his property development business and the pursuit of his applications for bail and appeal. He was not allowed to conduct business in jail, and, being in jail, he could not manage his business as he had done when he was free to write letters, make phone calls, meet people and generally keep his business affairs going.
On 2nd June 1993 Miss Chan visited Mr Leung in prison. She says that over the phonelink between prisoners and visitors he told her that no one could or would help him except Miss Chan; that he wanted her to help run his business affairs and organise his bail and appeal; and that, if she did these things for him, everything he had would be shared with her. Her evidence was that it was in that first visit that Mr Leung asked her to agree to the sale of the Chuk Kuk house to raise money for legal and other expenses. She says at an early stage of his sentence Mr Leung repeated his promise to marry her, said he would buy her a better house than Chuk Kuk in the future and told her she was to be, in effect, his business partner.
When Mr Leung went into prison most of his employees left. Miss Chan remained but was paid no salary. He gave her sums of money to pay expenses and live on. She began to work with his lawyers on his applications for bail and appeal. It is clear from the prison letters that he expected to get bail and expected that his appeal would be successful. But his application for bail was refused in February 1994 and his appeal failed in June 1994.
Miss Chan became involved in Mr Leung's business. The extent of her involvement is disputed; and I will deal with that in detail later. On 21st June 1993 Mr Leung gave her a general power of attorney.
On 1st September 1993, Miss Chan began working for Ho & Chan, a legal firm used by Mr Leung. Mr Joseph Chan was not just one of Mr Leung's lawyers but a friend and helped Mr Leung with his business affairs while in prison. In September 1993, Miss Chan became Mr Chan's assistant.
In October 1994, however, she left Ho & Chan and went back to work for Mr Sam Wong, a Hong Kong legislator, for whom she had worked before joining Mr Leung's office. But while working for Mr Wong she continued to help Mr Leung.
In about March 1995, Mr Leung was allowed out of prison during the day and able to become involved again in business matters. The prison letters then come to an end.
On 1st June 1995 he was released from prison, having served two years.
In early May 1995, Miss Chan went to England to stay with Mr and Mrs Lai. They were friends of Mr Leung. Mr Leung stayed in Hong Kong as he had to return to prison each night. He wrote numerous faxes from Hong Kong to Miss Chan in England, in particular concerning the purchase of the house, the choice of Hill House and the financial arrangements for its purchase.
On 18th May 1995, contracts were exchanged for the purchase of Hill House. It was bought in the name of Melodious. I will need to consider the financing of the purchase in detail, but there was a mortgage loan of £360,000 from the Bank of East Asia London Branch, secured by a mortgage over Hill House and a cash deposit of £360,000 in Singapore. In 1995, the cash deposit was reduced to £180,000, and, in 1996, the remaining £180,000 cash deposit was used to reduce the mortgage loan (already somewhat reduced by monthly repayments) to about £166,000.
In June 1995, Mr Leung and Miss Chan moved into Hill House and lived as man and wife. In late 1996 they began buying a property portfolio of houses to rent out in the Woking area. They bought nine properties in all in the name of Melodious.
In June 1998, Miss Chan got a nonmolestation order against Mr Leung. She has remained living in Hill House. The investment properties have been sold, the mortgage on Hill House has been paid off and there remains in the order of £250,000 in cash from the sales of the properties.
There are various aspects to the promises or representations which Miss Chan says Mr Leung made when he asked her to help with his affairs whilst he was in prison. One aspect was the promise to divorce his wife and marry Miss Chan, and that they would set up home together and have a family. I must bear in mind what Lord Bridge said in Lloyds Bank v. Rosset [1991] 1 AC 109 at 132:
The first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially.
Sharing joint happiness is one thing; sharing ownership of property is another. The court must be satisfied that there was an agreement or common intention that both parties to a relationship would share ownership of a jointly occupied property.
In Rosset the Court was concerned with the question whether a couple had a common intention that the wife should have a beneficial interest in the existing family home. In 1993, Mr Leung and Miss Chan had no such joint home. What was promised related to a future home. But the principles stated in Rosset have equal application to promises and intentions regarding a future house as to promises and intentions regarding an existing one. The court must be satisfied that what was promised was not just a home with no promise of any beneficial interest in it, but a promise of future ownership.
Another aspect of the promises and representations said to have been made by Mr Leung was that Miss Chan would have a share in his business interests. In this action Miss Chan confines her case to a claim to a share in the profits of two developments in Hong Kong, one called Wo Mei, the other Ho Chung. Her case is that she was promised a share in return for looking after Mr Leung's interests in those developments whilst he was in prison. Those development sites were already owned or controlled by Mr Leung in June 1993 and some progress had been made. So the court is concerned in relation to these with a situation, such as in Rosset, where one party claims a share in existing assets owned by the other party.
One of the developments, Wo Mei, was carried out through the company, Kelfund Consultants, I have already mentioned. Hill House, as I have said, was bought in the name of Melodious. It is agreed by both counsel that the intervention of a company cannot of itself frustrate a common intention by two parties that they should share beneficial ownership of a property. That was the conclusion tentatively reached by His Honour Judge Maddocks in Re Schuppan [1997] 1 BCLC 256, where at 268 he said:
As a matter of general principle I do not reject the proposition that the claim under the first limb of Lord Bridge's speech [in Rosset] would necessarily be excluded where property was acquired through a company. Certainly the court would not allow an otherwise valid claim to be defeated by the legal owner using a company to hold the property and sheltering behind the company.
Judge Maddocks expressed himself somewhat tentatively because the wife in that case was not legally represented so he had not had the benefit of argument. But here both parties are, if I may say so, ably represented.
The relevance of the two developments to this case, where the issue is the extent of the Claimant's rights in Hill House, is that it is Miss Chan's case that the money from those developments was used to buy Hill House.
One issue common to both the promise to buy a house for Miss Chan and the promise of a share in the two developments is the question of detriment. In each case she must show that she altered her position to her detriment in reliance on the promise. Detriment is disputed on two main grounds. Mr Leung argues that Miss Chan did not do very much and that what she did do, she did for love and not in reliance on any promise or representation. I will start, therefore, by resolving the issues of fact on the issue of detriment.
Mr Leung accepted that Miss Chan helped with his applications for bail and his appeal. But he sought to belittle her contribution. He said she was capable of being an assistant to his lawyers but no more. He was shown, in crossexamination, a letter from him written on 28th June 1993 (D69) in which he said
Fighting my case in court and helping me get bail aren't your responsibility; you're just a young girl, but how you managed to be able to persuade Fa Ge, Hua Lin or K.C. to act as guarantors for my bail in such a complicated situation is already something incredible.
Mr Leung's ungracious response was that he had been upset as this had been done without his permission and that, anyway, guarantors were not needed.
It is clear from the prison letters that, although his lawyers could visit him in prison, Miss Chan was used to arrange such visits and that she was used as an important channel of communication between Mr Leung and his lawyers and by them with him. He also used her to get the lawyers to do things, just as he would have done as the client if he had not been in prison. What Miss Chan did for Mr Leung in relation to his legal problems was but a part of the work that she did for him whilst he was in prison.
She was also involved in his business affairs. Again, Mr Leung sought to downplay and belittle what Miss Chan did in connection with business affairs whilst he was in prison. In his Defence, which he signed as true, he said that her "involvement with the Wo Mei and the Ho Chung developments was limited to an occasional visit to the sites to take photographs of the work in progress for Mr Leung at his request. All aspects of the development, from liaising with architects and builders, to choosing colour schemes and finishings were carried out by Mr Leung's brothersinlaw, both of whom are in business as qualified professional project managers".
In crossexamination, Mr Leung insisted that that was all she did; that she was just his "eyes and ears" to go to the development sites and take photos so he could see progress. Faced with letters from him recording greater involvement, he suggested he was merely giving her the chance to learn the property business so that, when he got out of jail and they came to England, she could help in the property business here. He said that the developments were all in the hands of professionals so there was no role for Miss Chan to play. According to Mr Leung, his two brothersinlaw were the project managers of the Wo Mei and Ho Chung sites; that they did everything, except what fell within the province of the appointed architect. Again, the prison letters show that Mr Leung's evidence on this aspect of the case is also untrue.
One theme of his evidence was that Miss Chan knew nothing of business, so she could not help out with business matters. Although he did accept that she was hard working and clever. When Mr Leung asked Miss Chan to help him in both business and legal matters in June 1993, she had no business experience. Her career had been in the political field. He asked for her help, not because she was well qualified in terms of experience or qualification, because he needed somebody. She had demonstrated competence both as a political assistant and in helping in preparation for his trial and, because of their relationship, he thought that she would be willing to help.
In the early prison letters Mr Leung expresses concern whether Miss Chan would be able to cope to cope with all he had asked her to do. On 9th June 1993, he wrote to her (D79):
Ling Ling, in the last three weeks you have been all over the place dealing with my business and have had to wait around a lot. Now there is little chance of getting bail are we beginning to get bogged down by it all? Please be careful. I am relying on you for everything and you have complete power over everything I do. But I am worried that you don't have enough experience and that you may be taken advantage of by other people. That won't be good for you so I am going to take back the Benz and he won't be able to use the boat any more. The power of attorney I have given you has been adjusted with this in mind. You can handle all my legal affairs, but the lawyers will be responsible for all business matters.
However, Mr Leung soon changed his mind.
On 21st June 1993, Mr Leung gave Miss Chan a power of attorney to deal with all his affairs. He says that Mr Ho of Ho & Chan objected to this power of attorney and that it was soon revoked. He says that it was Miss Chan who asked for this power of attorney. The prison letters again show that Mr Leung is not telling the truth. His grounds for saying that Miss Chan had asked for the power of attorney was because it was Miss Chan's friend, Peter Fu, who prepared it. He says that he would have asked his own lawyer to do it had it been his idea. The prison letters show that Mr Fu was one of Mr Leung's lawyers. He advised about Mr Leung's divorce. On 13th August 1993, Mr Leung wrote to Miss Chan asking her to arrange for Peter Fu to come and see him. He said he hoped Mr Fu would come and see him regularly.
It is clear that the power of attorney given on 21st June 1993 was not revoked. On 28th June, Mr Leung wrote (D69):
Did you know that I had signed the power of attorney on 21st June? All you need to do is give the court a copy on 22nd June.
He refers in his letter to his sisters thinking that Miss Chan and Tony Chan (a fortune teller) were trying to rip him off and went on:
They [his sisters] were especially worried about the complete power of attorney invested in you by that document. I already told you that the power of attorney was valid. You had better leave it with Pat Ho and Joseph Chan for the moment. If I can't sign something, you can just sign it for me. I never mentioned to Pat Ho that I wanted to cancel the arrangement. It is with him for safekeeping. I think you understand their [that is his sisters'] point of view. They don't understand at all, though that is hardly surprising considering the circumstances.
On 5th July 1993 he wrote D30:
I have asked Miss Chen the lawyer to make you a director of [of Simple Delight, a company which owned a development site]. In fact I am the majority shareholder of Simple Delight, and anyway you have my power of attorney so there should not be any major problems.
In crossexamination, Mr Leung continued to insist that the power of attorney was revoked; that Mr Ho took it away from Miss Chan and it was revoked "immediately". When referred in crossexamination to a letter, probably written in August 1993 when he said:
You're the most important thing to me and you can take control of my financial affairs in the future, all the proceeds of the present transactions will be under your control. I know I am not good at this sort of thing. You have my power of attorney. You can sell me. My destiny already lies in your hands.
Mr Leung says that was a joke, written just to please Miss Chan.
He confirmed that the words "you are my PA. You can even act in my name", in a letter (C163) written on 12th February 1994 was a reference to the power of attorney given in June 1993. When Miss Chan was in England Mr Leung faxed her on 10th May 1995:
Do your best to look around and find our dream home. You have my authority, my PA, and the most important thing is my trust in your judgment.
He confirmed that "my PA" was a reference to the power of attorney given to Miss Chan on 21st June 1993.
The most important aspect of the power of attorney was that it demonstrated Mr Leung's sincerity in saying that he would share his business assets with Miss Chan. Mr Leung, in crossexamination, accepted that the power of attorney convinced Miss Chan that he meant what he said when he had made promises to her.
As time went on, the letters show that Miss Chan became increasingly involved in business matters and that Mr Leung found he could not rely as much as he planned on help from others.
Some time in August 1993, Mr Leung (D290) told Miss Chan that Joseph Chan (that is of Ho & Chan) "has promised to see to all the business and the three Wo Mei sites and the three Ho Chung sites for me". There were three buildings on each site. This shows, contrary to Mr Leung's case, that there was a role for someone in this case a lawyer other than the project managers.
By 22nd August 1993 he wrote (A9):
I feel Joseph is getting tired and can't really cope, but I hope you'll soon sort it all out.
On 12th August 1993 (A298) he complains to Miss Chan that his partners and family are like vultures:
Let them get on with it. I am like an ox waiting for death, while they are vultures waiting to share my body. But they'll only get my empty shell. This is how the business I set up singlehandedly is ending.
As I have said, one person who supported Mr Leung was Joseph Chan of Ho & Chan. The letters are full of praise for his efforts. But by November 1993 Mr Leung began to realise that there was a limit to what he could expect Joseph Chan to do. On 6th November 1993 (A267) he wrote to Miss Chan:
Because [Joseph's] busy I can't take up any more of his time and I can't ask him to do the more complicated things. There is a whole series of important jobs to do in November. The grounds of appeal, the submission to the chartered surveyors in midDecember, supervising the site clearance at Wo Mei and Ho Chung, arranging finances, reducing outpayments, reorganising assets. I have to discuss all these things with you face to face, they all need time for thorough analysis and thought, so as to find the best ways to deal with them. Joseph is very anxious, and you won't be idle! Arranging everything in the mornings at home, meeting me at midday, and sorting out documents in the evenings and making a little use of Psyche's secretarial services.
Later in November 1993 (A318) Mr Leung wrote:
Joseph [Chan] hopes it will give you the scope to do what you are good as and I too think you have what it takes to do business. You are very bright and you are good with people. There are a lot of opportunities for expansion in the business world. You could discuss cooperating with CW [that is CW Tai of GoldFace] in expanding the oyster sauce business. Although Wo Mei is very small, it is a start, and there is my parking space lot in Shatin which could also be sold to CW or shared with him.
It is clear that by November 1993 Mr Leung had confidence in Miss Chan's abilities in the business world and was encouraging her to take more responsibility. In particular, he asked her to be involved more in the Wo Mei and Ho Chung projects, and I illustrate her increasing involvement in Mr Leung's business affairs by reference to her involvement in these projects as revealed by the prison letters.
When he first went to prison Mr Leung had severe cashflow problems and could not afford to start any construction work on the Wo Mei or Ho Chung projects. But when Chuk Kuk was sold Mr Leung wrote (D247) on 12th August 1993:
I am thinking whether we should start work on the Wo Mei and Ho Chung sites. The construction costs there will be $900,000 each so for 6 units, 6 × $900K is $5.4 million. Greening work is best done together with other people. We can't put cash up ourselves; is that right?
A few days later (D261) he writes:
The first thing we need is a financial foundation strong enough to maintain our future life. I think we have to get work started on the Wo Mei and Ho Chung sites. We should be able to get partners for two years. The present value of the site is about $12 million.
He then sets out a calculation of the selling price and the costs and he concludes that the value of the two sites when complete will be $20 million after payment of costs.
In these letters it is clear that Mr Leung is treating Miss Chan as his business partner and discussing what they should do about Wo Mei and Ho Chung.
I have mentioned that Mr Leung's case is that the sites were professionally managed by his brothersinlaw, so there was no role for Miss Chan to play beyond being his "eyes and ears". In the same letter (D262) he refers to doubts about his brotherinlaw Herman Sze:
We should think carefully about whether Herman is as bad as Tony Chan's evaluation of him.
In August 1993 (A31) Mr Leung wanted Joseph Chan to manage the sites for him. What he arranged with Joseph Chan was that the Claimant would assist Joseph Chan with the Wo Mei, Ho Chung and another site. But soon afterwards (A32) he tells Miss Chan that he thinks that Herman Sze should deal with the Ho Chung site and that his other brotherinlaw, Ah Choy, should be responsible for Wo Mei. He discusses in the letter involving Ah Choy as a partner, but concludes:
If we do it ourselves, we can get $4 million more, so we should do it. You could learn too. A wife singing along with her husband (A32).
By 27th September 1993 (A135) work had started on the Ho Chung project. Mr Leung tells Miss Chan he is a little concerned about Herman Sze's present bad attitude and tells her "If Herman really isn't suitable ask Ah Choy to take over from him".
In October 1993, Kelfund Consultants and another company were bought off the shelf. Kelfund was used for the Wo Mei development site. Mr Leung continued the development of Ho Chung personally but used his driver and assistant, Ah Bo, as a nominee to sell the units.
Miss Chan and Angela (Mr Leung's sister) were appointed directors of Kelfund. When Mr Leung sold the half share in Wo Mei to GoldFace Investment Holdings (controlled by his friends CW Tai) two additional directors were appointed to look after GoldFace's interests in what was then a 50:50 company. Work started on Wo Mei in October 1993.
On 8th November 1993 (A280) Mr Leung wrote:
We have to ensure our interest. Our property is things that I have earned through hardship and needs to be preserved as the funds for our return to the world.
In crossexamination, Mr Leung insisted that what he meant was that Miss Chan would be his wife and in the future they would do business together and share the profits of that future business. That is not how it is expressed in the letters. There are regular references to the property interests Mr Leung had built up by his work before he went to prison as "our property", to selling the property and starting a new life together.
In one letter (A321) he told Miss Chan that he had told Joseph Chan that "everything is now in your hands my life, the future and any developments". This is an emotional statement but the reference to developments being in Miss Chan's hands shows there was a practical side. It belies Mr Leung's attempted explanation that he was referring merely to her spiritual support of him in prison
By 25th November 1993 (A366) he tells Miss Chan that he hopes she will be able to help Ah Choy with the Wo Mei project:
For the designs and materials you can try out your very special taste, the floors, the tiles, the bath tubs.
In early 1994 he is turning his mind to what he will do when he leaves prison, as he hoped to do when he got bail. In one letter (C63) he says that the first thing he will do is arrange matters with his wife; and the second thing is to sell off Ho Chung and Wo Mei so they could both go travelling.
The bail application failed in February 1994. His hopes then rested on his appeal. In February 1994 (C171) he wrote to Miss Chan:
The main thing now is that you put pressure on WKLL [which was the law firm acting in the criminal matter for Mr Leung] with regards to the appeal. You need to go over my suggestions and pass them on to the lawyers. Also you need to push forward on the work on Wo Mei and Ho Chung.
This cannot mean, as Mr Leung said it did, that she was just to pass on his anxieties to Ah Choy and Herman Sze.
Later in February 1994 he says:
Herman Sze doesn't bother to spend much time checking up how things are going at Ho Chung. If you have time, check up on things. Let me know what happens with the Wo Mei prices. You can ask other people in the business what they think the price should be. A six room house could sell for $40 million. Take away the costs and we still have $30 million to set up in business, but it is up to you to keep an eye on things.
He agrees to Miss Chan's suggestion that Ah Choy should be asked to pay the construction costs of Wo Mei. He suggests (C210) that Miss Chan sells one of the Wo Mei houses, that the purchaser should put down 30% to reserve it, which they could use for construction costs. This letter, among others, makes it clear that it was possible to raise money from sales of units at Wo Mei and Ho Chung before obtaining the necessary certificates from the Government which enabled the sales to be registered at the Land Registry.
On 16th March 1994 (C245) Mr Leung is asking Miss Chan:
Do we need Herman's help any more in Ho Chung? You and Ah Choy can take charge of ongoing work. You can keep an eye on this. Bath rooms, tiles, etc. You can learn something okay?
Later in March 1994 he tells her:
There is no point in relying on Herman to sort out the work at Ho Chung. He isn't doing anything to get things moving. One of the most important aspects of the job is choosing the tiles. You need to have a bit of taste. It is the first thing that a potential buyer notices. We can rely on Ah Choy to go and have a look to choose the tiles. You can handle the choice of tiles in the bathroom and floors. If you leave that up to them they will just choose the cheapest.
In his witness statement Mr Leung had said that Miss Chan's involvement with the developments was limited to occasional visits to take photos and that all aspects of the development, including specifically choosing colour schemes and furnishings, were carried out by his brothersinlaw as project managers. Again the prison letters show that that evidence is untrue.
In late March 1994 Mr Leung wrote to Miss Chan (C297):
You are going to remain pretty busy for the rest of the month, what with Wo Mei and Ho Chung. You are the unofficial Project Manager. You need to go and check up on things every week.
Mr Leung in crossexamination said that this did not mean anything.
In April 1994, Mr Leung wrote (C337):
I expect your job has given you a bit more stability now. Why don't you get in touch with CW and WH so that you can go over to Wo Mei and Ho Chung and look at developments at the site. You need to choose the colour scheme of the tiles, the baths, the basins and the flooring. You have a very good sense of beauty. Herman said there was a big offer on three of the Ho Chung units ; $18 million. After putting up the ground price, we can get a 20% deposit, which will be $1.6 million. At the very least, we are going to get $18 million less the remaining construction costs, about $12 million, which gives a total of $12 million. This can be part of our startup capital.
Mr Leung says that the $12 millions was his estimate of at that time the profits of Ho Chung. Mr Leung goes on to estimate the profits for Wo Mei.
There will also be $7 million × 3 units from Wo Mei, which gives a total of $21 million. Putting up the price will mean 1.6 × 3 = $4.8 million. The remaining construction costs are 1.8 million, so 21 million less 6.6 million leaves us with $14.4 million. Our share is $7.2 million. But we still have to give CW back his $4.2 million, which will leave us with 3 million.
I really want to find another house even better than Chuk Kuk with a fishpond and a big garden and a good view.
By this time GoldFace Investment Holdings, controlled by CW Tai had bought a 50% interest in Kelfund Consultants, which was the company used for the Wo Mei development and had paid $4.2 million for that interest hence the reference to "our share" being only half the $14.4 million and having to given CW back his $4.2 million.
The reference in this letter to Miss Chan's job at Ho & Chan giving her more stability followed by a suggestion that she asked two people to take her over to see the developments she did not drive herself indicates that her visits to the sites were not part of her work at Ho & Chan. Mr Leung's case in his defence is that Miss Chan only became involved in his affairs as a result of becoming Mr Joseph Chan's assistant, although in his witness statement he says that her job at Ho & Chan was not concerned with his affairs, but involved secretarial work for Ho & Chan and, that as Joseph Chan's secretary, she became familiar with his affairs and wanted to help him in view of their personal relationship.
A few days later (C341) Mr Leung writes commenting on points he has noticed on photographs that Miss Chan has sent him of the two developments. He goes on:
Also you need to take into consideration the colour of the tiles. You need to rely on your own taste to choose the patterns. I'm looking forward to seeing what kind of a job you did of it.
On 1st July 1994 C687 Mr Leung wrote:
From July onwards all the bills regarding Wo Mei will be settled by GoldFace and I will settle with them afterwards. They agreed to that in the past. All the bills should be sent to them as early as possible. In that way we will sooner get the money and our burden will be lightened. You have to go to GoldFace about the price and to formulate the selling procedures.
Mr Leung accepted he was asking Miss Chan to go to GoldFace and get them to set up selling procedures. He insisted in crossexamination that Miss Chan had nothing to do with actually deciding on selling prices.
But on 8th July 1994 (C707) he wrote:
You have to finalise the price list of Ho Chung. CW [Tai of GoldFace] says that you are fully in charge of the price at Wo Mei.
Mr Leung's only explanation of this was that CW Tai was flattering Miss Chan and did not mean it. He insisted that she was merely being given the chance to learn how to price a development.
Miss Chan's evidence was that she was involved in setting the prices of the Wo Mei units; that she researched the prices of comparable properties; got guidelines from Mr Leung; and then told Mr Leung and Mr Tai what the asking prices were to be. I accept that evidence.
She gave evidence that she became responsible for checking that work was done and signing a document authorising the architect to release funds to the builders. She said that on one occasion she had to deal with a situation where the builder was threatening to work off site because worked certified for payment had not been paid for. To avoid a walkout she had used her own money to pay the builder. I accept that evidence.
In August 1994 Mr Leung finally lost patience with his brother inlaw Herman Sze; he writes (B68) about it being fortunate that Wo Mei is being taken from Herman Sze's "evil clutches" and (B70) he complains that Herman Sze has failed to get an Exemption Certificate for Ho Chung. He says:
The more it goes, the more Herman Sze is completely out of hand. I have decided about Ho Chung. He is to managed it no longer. There is no need for him to be responsible. As of today, you [Miss Chan] are responsible. Apply for a Certificate of Compliance. I will compose a draft and give it to Joseph. If you look after it, all will be well. After, you need to follow up by telephone. I have absolute confidence in your talents. You are more than qualified. I can no longer depend on Herman Sze to manage my assets.
In a later letter (B84) he says that he has written to Herman Sze saying that he is no longer involved with Ho Chung, but that Miss Chan has "all the power and all the responsibility, all the strength and all the knowledge and all the ability to do the job". Even faced with this letter, Mr Leung insisted that all the work on Ho Chung was done by Herman Sze and that Miss Chan was not involved in any work on this project.
The prison letters continue in a similar vein, showing Miss Chan becoming increasingly involved in not just Wo Mei and Ho Chung, but other matters. Mr Leung continued in crossexamination to insist that she was only his "eyes and ears", with an occasional concession that she did something but insisting that he was simply giving her the opportunity to learn the development business, with a view to being actually involved as a partner with him in business when they went to England.
But in the prison letters, it is clear that England was only one of a number of possible places considered for their new life together and that their business in whatever place they chose would not necessarily be property development. Mr Leung talks of setting up a souvenir store in Hawaii or of buying an restaurant in a Chinese interest in Bath. In the event their business in England was not property development in England, but a portfolio of rented property.
I could go on citing passages from the prison letters which further demonstrate the extent to which Miss Chan became involved in the running of Mr Leung's business matters. To do so would be to overburden further this judgment.
I draw the following conclusions on the question of Miss Chan's involvement in Mr Leung's business affairs and in the Wo Mei and Ho Chung development projects in particular:
(1) Her role in his business affairs was not limited to occasional visits to sites to take photographs.
(2) Miss Chan was not experienced in business matters in general or property development in particular at first.
(3) She was not, of course, doing anything requiring technical or professional expertise.
(4) She was not the only person helping Mr Leung. He employed, for example, lawyers such as Joseph Chan, an accountant, Mr Leung, his brothersinlaw as project managers, and architects.
(5) Miss Chan did have to learn how to do things as she went along. She got help from Mr Leung, but also used her own contacts with engineers from when she worked with Mr Sam Wong before she joined Mr Leung in order to get help and advice on how to go about things and how to get further help.
(6) She was doing what Mr Leung would have done to run his business if he had been at liberty. She was not able to do all that he could have done. He continued to be involved in decision making but discussed matters in some details with her as his partner.
(7) As Miss Chan gained experience and as Mr Leung found that others on whom he relied for help could not cope with the demands he made of them or would not do as he wanted, Miss Chan assumed increasing responsibility, and increasingly made business decisions. She became the person he mainly relied on.
(8) From the beginning, Mr Leung needed someone to do things in relation to his business which he could not expect or afford those paid to help him to do. He recognised that in the early stages there was a limit to what he could expect Miss Chan to do, but he had confidence that she would develop and play, as she did, an increasing role in his business, a role such that it was appropriate that she should be his business partner.
When Mr Leung asked her to help with his legal and business affairs while he was in prison, Miss Chan had decided to stop working for him as his political career was finished. I accept her evidence that many of her friends and political connections urged her not to continue to work for Mr Leung and that other legislative councillors were willing to employ her if she had left Mr Leung at that time.
Her reasons for staying with him were mixed. She was drawn to him romantically. She was, I think, flattered to receive the attention of a rich and older man, and moved by his offer to divorce his wife and marry her. She also felt sorry for him. She says that in prison he seemed alone and without help. Having listened to her give evidence for about oneanda half days, I am satisfied that she is not just a romantic woman who was willing to stand by her man. She is capable and intelligent, and has demonstrated, particularly in relation to Hill House, a determination and ability to look after her own interests, even in 1995, when a life together was much closer to realisation than it was in June 1993.
In June 1993, the relationship with Mr Leung was relatively short in duration. It had only begun at the end of February. I accept her evidence that love and pity alone would not have persuaded her to give up her career and help Mr Leung whilst he was in prison if he had not promised her not only marriage but financial security in the form of a share in his assets and a home she would own. She agreed to the sale of Chuk Kuk but Mr Leung promised he would buy her another house.
By agreeing to help Mr Leung, she not only gave up a promising career, but she became, because of her association with him, the object of some opprobrium. One of the less attractive features of Mr Leung's evidence was his attempt to belittle what Miss Chan did for him and what she suffered at the time. In his letters from prison he was more generous, and, in my view, more sincere. I have already referred to letters where he acknowledges the sacrifices she was making and his worries that she would lose everything. In an early letter he wrote (D51):
All I want you to do is gather your energies and attract people's attention to my case. I often feel I should apologise to you. You could have made a better choice and you could have a better job. I will never forget how much you have done for me.
In another (D80) he wrote:
But I know how difficult it all is for you. If none of your friends or your family approve then what can I do? The choice is up to you. There are many eligible men chasing you and you have to wait for me.
And in another early letter of 5th June 1993 (D85):
The only thing is that it is not fair to you. You don't deserve this pressure or embarrassment. Ling Ling, I am so sorry. However the husband and wife that can survive the troubles together will always be together.
In another letter (A58) written on 5th September 1993 he referred to her as being "willing to give up everything for me and to take care of me in my time of greatest difficulties."
Generally in the prison letters he shows more gratitude for what she was doing for him and what she gave up and suffered as a result than he was willing to concede when he was giving evidence.
I turn, therefore, to the question whether Miss Chan acquired a beneficial interest in the Wo Mei and Ho Chung projects. I accept her evidence that Mr Leung asked her to help with his legal and business affairs in return for a share in the business he had built up. Her evidence, indeed, goes beyond her case. She claims only an interest in the profits of the Wo Mei and Ho Chung projects. I find her a truthful witness; and her evidence that he promised her a share in his business is confirmed by the general tone and specific passages in the prison correspondence. For example, Mr Leung discusses frequently what we should do. I have quoted passages from the letters which illustrate this.
There are numerous references in the prison letters to the Wo Mei and Ho Chung projects in particular being the source of the funds for them to enjoy their future life together when Mr Leung gets out of prison.
Miss Chan responded to his request for help by devoting herself to helping with his affairs, both legal and business. I find, therefore, that there was an agreement that Miss Chan should have a beneficial share in the Wo Mei and Ho Chung projects.
The next question is whether Miss Chan acted to her detriment or significantly altered her position in reliance on that promise so as to give rise to a constructive trust or proprietary estoppel (see Lord Bridge in Rosset at page 132G).
Mr Leung's case is that Miss Chan did all she did for love. Miss Nicholson pointed to the numerous passages in the letters where Mr Leung refers to their happiness as a couple and to Miss Chan's own evidence that, as Mr Leung's future wife, she was happy to sort out the mess when he went to prison. She referred to the fact that Miss Chan would go and stand outside the prison, sometimes in unpleasant conditions, just to give Mr Leung the chance to see her and wave to her from the window. It is clear from the prison letters that Mr Leung was very much in love with Miss Chan. The extent of her love for him is less clear because he did not retain her letters to him, but her evidence is that she loved him and believed he would divorce his wife and marry her.
Miss Nicholson, counsel for Mr Leung, submitted that the court, when considering detriment, must look at the whole situation, taking account, as it were, of credits as well as debits, benefits as well as hardships. Miss Chan had been receiving a salary of about Hong Kong $25,000 a month from Mr Leung as a political assistant. She had worked as a political assistant in similar jobs for about five years, gradually gaining experience and an increased salary. When Mr Leung went into prison, she lost her job as his political assistant. He had no need for a political assistant. He was a disgraced politician. For a time she had no regular income. Mr Leung gave her sums of money from time to time, but much of that was used for expenses, and it is clear that he had severe cashflow problems when he first went to prison.
In September 1993, Mr Leung arranged for Miss Chan to have a job with Joseph Chan of Ho & Chan. It appears this was partly to facilitate her helping Mr Leung, but Mr Leung's own evidence was that it also involved helping Mr Joseph Chan in other matters. Some of the things she did for Mr Leung could, no doubt, be done in Ho & Chan's time as it were, but I find that much of what she did was in addition to, and not part of, her work for Ho & Chan. She got Hong Kong $20,000 a month from Ho & Chan and it was a job that took her out of what was her chosen career in politics. I find that she would have been able to pursue that chosen career with continued and, indeed, probably increased success when Mr Leung went into prison if she had not decided to abandon that career and help him.
Mr Leung gave Miss Chan Hong Kong $700,000 so that she could buy out her brother's interest in a flat which was registered in their parents' name. I reject Mr Leung's evidence that Miss Chan deceived him by concealing the fact that her parents were the registered owners. There are references to the involvement of the parents in the prison letters, and Miss Chan is not, in my assessment of her, a deceitful person. There is no suggestion that the $700,000 was other than a gift. It was not intended as a payment for services rendered.
In Gillet v. Holt [2000] 2 FLR 266, the Court of Appeal held that when a court is considering detriment it must consider it as part of a broad enquiry, whether repudiation of an assurance was or was not unconscionable in all the circumstances (see the judgment of Robert Walker LJ at 287).
Where the claimant is acting, at least in part, out of love for the defendant, the question the court must answer is not 'did the claimant do what she did out of love for the defendant'. As the Court of Appeal pointed out in Wayling v. Jones [1995] 2 WLR 1029 at 1034, the relevant question is what Miss Chan would have done if Mr Leung had told Miss Chan that he would not after all be giving her a share in the Wo Mei or Ho Chung projects or that he would not be buying her a dream house.
The promises of marriage, a dream house and a share in the projects cannot be considered individually in isolation. They were aspects of Mr Leung's promise of commitment to Miss Chan in return for her commitment to him. I am satisfied, from having heard Miss Chan's evidence and in particular her evidence of her attitude in May 1995 when she doubted Mr Leung's commitment to marry her, that if she had thought that Mr Leung would not deliver on any of the promises, whether marriage, dream house or business, she would have walked away. The promises of the dream house and a share of the projects were interlinked, in that the projects were to provide the funds for the dream house. I am satisfied that the promises of the house and the share in the business were material inducements for Miss Chan to do all that she did.
In Wayling v. Jones at 1031 Balcombe LJ set out the relevant legal principles. These are:
(1) There must be a sufficient link between the promises relied on and the conduct which constitutes the detriment.
(2) The promises relied on do not have to be the sole inducement for the conduct; it is sufficient that they are an inducement.
(3) Once it is established that promises were made and that there has been conduct by the plaintiff of such a nature that inducement may be inferred, then the burden of proof shifts to the defendant to establish that the plaintiff did not rely on the promises.
Standing back and looking at the evidence as a whole relating to Mr Leung's promises and Miss Chan's involvement in the Wo Mei and Ho Chung projects, I find that:
(1) The express promise by Mr Leung to Miss Chan of a share in his development business was expressed to be in return for her help in maintaining that business.
(2) That business included the two projects, and the evidence shows that these two projects were those that were, in June 1993, at an early stage and therefore needed ongoing management.
(3) Her work in relation to those projects was referable to the promise of a share in those projects by the terms of that promise.
(4) What Miss Chan did in relation to those projects went far beyond what an intended wife could be expected to do for an intended husband out of love.
(5) Miss Chan was induced to do work on the projects by the promise of a share in them, on the basis that the money made for those projects would be the funds that would enable Miss Chan and Mr Leung to set up a new life together, including a new home and a new jointly owned business of some kind after Mr Leung left prison.
(6) Mr Leung has not satisfied me that Miss Chan acted as she did purely out of love for him and not in reliance on the promises that he made.
(7) Miss Chan altered her position by remaining with Mr Leung and not pursuing her political career and by all the work that she did, and did so to her significant detriment, in that:
(a) she gave up that career, which was a successful and promising one;
(b) she devoted much of her time to helping Mr Leung in addition to her work for Ho & Chan and then for Mr Wong;
(c) by helping Mr Leung she attracted opprobrium and disapproval from family and friends;
(d) looking only at the financial position, she got very little money at first and then a lower salary from Ho & Chan than she could have earned as a political assistant; the $700,000 was a gift from Mr Leung out of natural love and affection, and is not to be taken into account;
(e) she devoted much of her own time to the two projects; indeed, she overworked trying to do her job and helping Mr Leung with the projects and other matters and ended up in hospital in January 1995 as a result;
(f) the work she did on the projects was significant and responsible work, which contributed significantly to the completion of the two projects and therefore the proceeds of the sales of the units. The projects were of significant value and produced significant profits in the context of Mr Leung's and Miss Chan's financial position. The exact extent of the profit is unclear in view of the inadequate disclosure by Mr Leung, but it is in millions of Hong Kong dollars.
(8) Mr Leung was, therefore, a constructive trustee of whatever interests he had in those two projects, whether directly or through nominees and in whatever funds he obtained from those projects, whether directly or through any interests in any company.
There remains the extent of Miss Chan's beneficial interest. There is no evidence of express agreement as to the share Miss Chan would have in the projects, but the general tone of the prison correspondence is that the couple would share everything equally. I find, therefore, that Miss Chan has a 50% share in the profits from the Wo Mei and Ho Chung projects.
The evidence shows that comparatively little had been spent on the projects before Mr Leung went into prison and that when in prison he was unable to pay much towards their costs. Accordingly, the bulk of the monies received by him after payment of the construction and other costs borne by others will have been profit.
I referred earlier in this judgment to Mr Leung's promise to give Miss Chan a house at Chuk Kuk which had to be sold to pay for his legal and other expenses and to his promise to buy her another house when he could. That promise was one of the promises he made to Miss Chan in the early days of his prison sentence when he sought her help with his legal and business affairs. Miss Chan's evidence that she did not finally abandon any idea of pursuing her career and did not finally commit herself to helping Mr Leung until some time after he went to prison. Her evidence was that the promise of a house to replace Chuk Kuk was made at an early stage and I find it had probably been made before she finally decided to devote herself to Mr Leung's affairs. I find, therefore, that the promise of the dream house, as it came to be referred to, was a promise which also led to Miss Chan altering her position to her detriment, as I have set out earlier.
The promise of the share in the projects and of the dream house were, as I have said, linked. The projects were to provide both the funds to buy the dream house and funds to set up a business together to support Mr Leung and Miss Chan in their new life. But the dream house and the new joint business are separate ideas. This appears from the prison letters. I have referred to the fact that the new business was not necessarily envisaged as one involving ownership of property other than business premises, whether a Hawaiian souvenir store, or a Chinese restaurant in Bath. In these letters Mr Leung expresses his ideas for the dream house as unconnected with his plans for the new joint business. There is no question that their home would be part of that business.
The common expectation of the parties was that when Mr Leung got out of prison he would buy Miss Chan a house to be their home as man and wife and as a replacement for the intended gift of Chuk Kuk, and that, separately from that, they would be in some sort of business venture together. That is the background to the acquisition of Hill House, to which I will now turn.
In early May 1995, Miss Chan came to England to stay with Mr and Mrs Lai, friends of Mr Leung, in Guildford. She came to look for a house in England for Mr Leung and herself, the house that Mr Leung in his prison letters had called their "dream house". Their plan was to set up home together in England. Mr Leung was on day release from prison in Hong Kong at the time and he sent frequent faxes to Miss Chan in Guildford. In these faxes he told her:
(a) "We have enough cash to pay the deposit for any house which is in the region of Hong Kong $4 million [about £330,000] (a fax of 9th May 1995)."
(b) "We will pay all cash and will not require any mortgage" (fax of 11th May).
(c) "Hill House is perfect indeed. Anyway we are in a better position to bargain a lower price in view of the short completion period and we pay cash. It is left to you to handle" (fax of 14th May).
(d) "I sent the deposit to you this morning at an exchange rate of 12.195 at the Hong Kong Bank" (fax of 15th May).
(e) "We are ready to sign the agreement and soon after that I will talk to CW [Tai of GoldFace] or Edmund Tsang for the bridging loan. I am prepared to ask for a six months shortterm loan of Hong Kong $3 million" (fax of 15th May 1995).
The faxes to Miss Chan in Guildford also report progress in selling the Wo Mei and Ho Chung developments. Thus, on 8th May 1993:
The Compliance Certificates in respect of lots 933 and 394 will be ready some time next week.
...
The second floor and roof of lot 933 may be sold at Hong Kong $2.48 million. I expect to be concluded this week, and Angela [Mr Leung's sister] is quite happy with the quick profit.
On 9th May 1993 he wrote:
I reconfirm with CW and there is an offer of Hong Kong $9.13 million to purchase three units in Lot 934 and the first floor of Lot 933. The purchasers will pay the deposit tomorrow.
...
After disposing of the units I feel quite relax. Thinking two small units in Hong Kong are able to offset a big mansion with garden in Guildford.
In another fax of 9th May:
I have to work hard to dispose of units in Ho Chung and Wo Mei to allow me to have more cash to buy the new house in UK and start the business.
In a fax of 11th May:
Regarding the sale of units in Wo Mei Mr Poon ChiFai talked to me this afternoon that a deposit will be paid tomorrow. Jennifer [Mr Lai's sister, the owner of the estate agency handling the sale of Wo Mei properties] said there is an offer to purchase 1/F and 2/F and roof at Hong Kong $4.65 million. Taking in to consideration the second floor owned by Angela, the first floor unit is Hong Kong $2.15 million, much higher than the original price of Hong Kong $2.5 million from CW Tai to me. I'll wait to see how things move.
On 15th May £40,000 (bought at the cost of Hong Kong $487,950) was remitted from Mr Leung's current account in Hong Kong to Michael Bell & Co, the solicitors handling the purchase of Hill House. Mr Leung had not disclosed any documents regarding the source of the funds used to buy Hill House, so Miss Chan made an application for disclosure. Disclosure was ordered on 31st October 2001, less than two weeks before the trial. Mr Leung, as a result of that order, disclosed some documents and made a further witness statement in which he said he believed that credits into his current account came from sales of units in developments other than Wo Mei and Ho Chung and from trading on the stock exchange. When I asked in the early part of the trial why there had not been earlier disclosure of the documents showing where the monies actually came from, I was told that Mr Leung's excuse was that the source of the funds was not thought to be an issue. It has been an issue on the pleadings for at least a year. Mr Leung had sought to deal with it by saying that the Land Registry entries showed all sales of units at Wo Mei and Ho Chung after the purchase of Hill House and that the monies for Hill House must, therefore, have come from elsewhere.
The evidence, including the prison letters, shows that sales could be made and monies received from purchasers prior to the sale being recorded on the register. I have already indicated my lack of confidence in anything Mr Leung says in evidence. It appeared from the responses to my enquiries as to the source of credit entries prior to the payment of the deposit that the truth is that Mr Leung does not know where the money came from. I do not accept his evidence of belief that it came from sources other than Wo Mei and Ho Chung. One source he identified was stock exchange trading, but the faxes from Mr Leung to Miss Chan in early May 1995 show that he was trading modestly and concerned to conserve cash resources for the purchase of Hill House.
The couple also spoke on the telephone in May 1995. Miss Chan's evidence is that Hill House was purchased with monies from the Wo Mei and Ho Chung projects. That must be based on what she was told by Mr Leung at the time as she was in England and he was organising matters in Hong Kong. The extracts from the faxes I have quoted above, particularly Mr Leung's statement that he felt quite relaxed after selling two units at Wo Mei, and his comment that two small units in Hong Kong enabled them to afford a big house in Guildford support Miss Chan's evidence that she understood that the money to buy Hill House came from Wo Mei and Ho Chung. Mr Leung says that "we have enough for the deposit" on two occasions. It was always the intention that the projects would provide the funds for the dream house.
I find, therefore, that the £40,000 remitted to the solicitors on 15th May 1995 came from the Wo Mei and Ho Chung projects. I have found already that Miss Chan had a 50% interest in the profit of those projects and I find that she has a 50% interest in that £40,000. That £40,000 was used to pay the deposit on Hill House when contracts were exchanged on 18th May 1995.
When the purchase of Hill House was agreed in principle with the vendors, Miss Chan was named as the purchaser, but the agent's record of the sale, dated 13th May 1995, records that Miss Chan would exchange contracts in her name but reserved the right at completion to purchase Hill House in the name of a limited company. It appears that in fact contracts were exchanged in the name of Melodious.
Melodious had already been acquired by exchange of contracts. Mr Leung's evidence is that he thought it was a good idea to acquire Hill House via an offshore company for tax purposes. The evidence shows that the idea of using an offshore company came from Mr Lai. Mr Lai was a Hong Kong lawyer. Mr Lai advised Mr Leung and Miss Chan that there were benefits in holding Hill House in an offshore company and that an offshore company would be useful if other UK properties were to be acquired. Accordingly, on completion, Hill House was transferred into the name of Melodious and Melodious is the registered owner.
Melodious is a British Virgin Islands company. Its sole director was originally a nominee company from the Bank of East Asia. Miss Chan holds 51 of the 100 issued shares; Mr Leung the other 49. The bank nominee company resigned as director when they failed to get joint instructions from Mr Leung and Miss Chan. Miss Chan then became a director of Melodious in place of the nominee company. I turn to consider the circumstances in which the shareholding became 51% to Miss Chan and 49% to Mr Leung.
In late May 1995, Miss Chan flew to Hong Kong. She had doubts whether Mr Leung would divorce his wife and marry her. She confronted Mr Leung with these doubts and did not receive a straight answer about if or when he would start divorce proceedings. So Miss Chan flew off to Beijing and confided by fax with Mrs Lai. Mrs Lai's fax in reply to Miss Chan from Beijing is in evidence. It is clear from this fax that Miss Chan had decided that it was all over between her and Mr Leung and that she would start a fresh life without him. Mrs Lai told her:
You are a good and clever girl and deserve someone better than the selfish Gilbert Leung. We admire your courage and determination to end the whole thing.
Mrs Lai told Miss Chan that she and Mr Lai would welcome her in Guildford whenever she was ready to come and that they could have a good talk about what Miss Chan should do. Miss Chan flew back to England shortly afterwards and went to stay again with the Lais.
On 1st June 1995, Mr Leung was released from prison. He flew straight from Hong Kong to England, and Mr Lai picked him up at the airport. When Mr Lai got back to his house, he told Miss Chan that he had had a serious talk with Mr Leung on his way back from the airport; that he had asked Mr Leung whether he would commit himself to Miss Chan or whether he wanted to be free to live a playboy life in Hong Kong. He told Miss Chan that Mr Leung had told him (Mr Lai) that he would divorce his wife and marry Miss Chan and would buy her a house in England. Mr Lai told Miss Chan that he thought Mr Leung was sincere in what he said and that Mr Leung would not lie to Mr Lai because Mr Lai was the lawyer to Mr Leung's fatherinlaw. There was then a meeting between the three of them at Mr and Mrs Lai's house. Mr Leung confirmed he wanted to marry Miss Chan but asked her to agree that he would own 80% of the shares in Melodious. Miss Chan pointed out, if Mr Leung had 80% of the shares, he could force a sale of Hill House against her will. She was concerned that he could change his mind about marrying her, sell Hill House and leave her with very little, if convenient to him. She was unwilling to put herself in a position where she could be treated like that. Mr Leung acknowledged that Miss Chan had supported him through bad times. After the intervention of Mr Lai it was agreed that in return for Miss Chan's agreement to set up home with Mr Leung at Hill House Miss Chan would be entitled to 51% of the value of Hill House and it would never be sold unless both Miss Chan and Mr Leung agreed. To reflect this, it was agreed that Miss Chan would have 51% of the shares in Melodious and Mr Leung 49%. She was told by Mr Lai that with her having a majority shareholding in the company Mr Leung could not force a sale of Hill House. The now happi er couple moved into Hill House and lived there as man and wife.
Miss Chan's account of the events of 3rd June 1995 set out above is not really challenged by Mr Leung in his evidence, save that he asserts that Melodious owns Hill House beneficially. The first issue is whether Melodious is the beneficial owner of Hill House or a trustee. In view of Miss Chan's evidence, which I accept, of what was agreed on 3rd June 1995, it is clear that the agreement was that the parties would be beneficial owners of Hill House in the proportions of 51 to 49. Accordingly, Melodious is a trustee and a shareholding of 51 to 49 in Melodious reflects the parties' interests in the sole asset of Melodious at that time, namely Hill House.
It was a term of the agreement that Hill House could not be sold without the consent of both. It is clear that this term was agreed to meet Miss Chan's concern that Mr Leung might decide to leave her and that she might then lose her home. The discussion on 3rd June 1995 has more of the flavour of a commercial negotiation than one normally finds between parties setting up home together in anticipation of married bliss. That is because mutual confidence had been badly dented by Mr Leung's earlier failure to say he would definitely divorce his wife and marry Miss Chan. Ownership of Hill House, albeit less than 100% ownership of the dream home previously envisaged, and control over whether it would be sold, were clearly important parts of the agreement. The express agreement of 51: 49 ownership is determinative of the question of the interests of the parties in Hill House and of the terms on which Melodious held the house as trustee: see Bernard v. Josephs [1982] Ch 391, Goodman v. Gallant [1986] Fam 106 and Lloyds Bank v. Rosset [1991] AC 108. I also hold that it was a term of the trust that Hill House should not be sold without the consent of both parties.
As to detriment, the promise of 100% of a dream house was one of the promises made to persuade Miss Chan to devote herself to Mr Leung's affairs in June 1993. I therefore find that, by so devoting herself, she has acted to her detriment, as explained earlier in this judgment, in reliance on that promise. All that changed in June 1995 was that she was willing to accept less than she had been promised for the work she did.
As shown by Re Basham [1987] 2 FLR 264, there can be a proprietary estoppel where there is a promise that the promisee will have a share in the future and relies on that promise to his detriment. In that case promises that the plaintiff would share in the estate of the deceased were made many years before his death, but the plaintiff was held to have a beneficial interest in his residuary estate, which must have included assets not acquired when the promises were made. There is, in my view, sufficient certainty that Hill House is the dream house which was promised to Miss Chan.
Apart from what she had done in Hong Kong, I find that Miss Chan also suffered substantial detriment by agreeing to live with Mr Leung in Hill House because it is his evidence that he was deceiving her when he said he was intending to marry her. If a woman is deceived into living with a man as his wife, the time she spends is for her time wasted. It is clear that, if Miss Chan had known of Mr Leung's true intentions, she would not have moved in with him. She might have stayed in England; she might have gone back to Hong Kong; but she would not have lived with Mr Leung.
I find, therefore, that Miss Chan acted to her detriment in relying both on the promise in 1993 to buy her a house to replace Chuk Kuk if she helped with Mr Leung's affairs and on the express arrangement in June 1995 that she should have 51% of Hill House.
She is therefore beneficially entitled to 51% of Hill House. It is common ground that the use of Melodious as a vehicle to hold the legal estate cannot prevent effect being given to a promise of a share in Hill House.
There is no evidence of any discussion at the meeting on 3rd June 1995 as to how Hill House would be paid for at completion. The faxes from Mr Leung to Miss Chan when she was first in Guildford in May 1995 show that monies would have to be borrowed to complete the purchase of Hill House. Mr Leung's initial intention had been to arrange a bridging loan from Mr Tai of GoldFace or a Mr Tsang. There is mention in the faxes of longer term borrowing, but in the event Mr Leung obtained a one year loan of HK $4 million from GoldFace Finance, which was a company owned by Mr Tai. This was a loan at 5.5% p.a. made on 9th June 1995 and secured on Kai Leng Villa. However, this money was not used to complete the purchase of Hill House. It was used to provide a collateral cash deposit with Bank of East Asia in Singapore as security for a loan of £ 360,000 made to Melodious by Bank of East Asia (London Branch). The purchase of Hill House was completed by using monies borrowed from Bank of East Asia London on the security of a charge over Hill House and security over the cash deposit in Singapore.
The cash deposit was funded as follows: Hong Kong $3,932,500 of the GoldFace loan was transferred to the ledger account of Simple Delight Ltd (a company 99% owned by Mr Leung) in the books of Ho & Chan. Mr Leung paid Hong Kong $550,000 from his personal bank account to Ho & Chan, which was credited to the Simple Delight ledger account. Of the total of Hong Kong $4,482,500, $4,451,710 was used to send £360,000 to the Bank of East Asia London, and that was in turn sent out to the Singapore branch.
I find that Miss Chan did know that there was a loan from Bank of East Asia to buy Hill House and a charge over Hill House. I am satisfied that she signed with Mr Leung as beneficial owners of Melodious a letter to the nominee director of Melodious (East Asia Corporate Services Nominees Ltd) asking that resolutions be passed to accept a loan facility from the Bank of East Asia and to accept the bank's legal charge. It is clear from the faxes from Mr Leung to Miss Chan in Guildford for example in one discussing loans to buy Hill House he says "however, you don't have to worry, it is my duty and job and let me to handle" that Mr Leung was responsible for organising the finance.
I accept Miss Chan's evidence that she has no recollection of signing the letter of instruction to the nominee director and there is no evidence that she knew the amount of the Bank of East Asia loan.
It is common ground that Miss Chan did not know of the Singapore deposit of £360,000. Mr Leung explains his thinking in his witness statement:
I never planned to purchase Hill House all with my own money. This was especially so since Hill House was going to be held in the name of Melodious and I had agreed to Miss Chan holding the majority of the shares. My idea, therefore, was to have a 100% mortgage with the bank. I thought this would make my position secure if our relationship broke down, if Hill House was mortgaged to the bank at its full market value and I had not paid anything other than the legal costs. I thought that if there was a problem the bank would get its money back by selling Hill House and I would not lose any money.
The backtoback deposit and the £360,000 secured loan on Hill House was therefore a device whereby Mr Leung hoped that, if he and Miss Chan split up, he could engineer matters so that the bank forced a sale or took possession of Hill House and sold it, recovered its loan and costs from the proceeds of the sale of Hill House and gave Mr Leung his £360,000 cash deposit back. It is perhaps unlikely that the bank would have been so obliging, but that was Mr Leung's plan.
Accordingly, Hill House was bought using £40,000 which had come from Wo Mei and Ho Chung and the £320,000 balance, plus the expenses, from monies borrowed from the Bank of East Asia. There was money left over from the £360,000 loan on completion, which was paid with Mr Leung's consent to Miss Chan. No issue arises on that.
In September 1995 the loan of £360,000 made in June 1995 was refinanced on the terms of a revised facility letter from Bank of East Asia. The cash deposit in Singapore was reduced to £180,000 by means of a side letter. In addition, the bank took a joint and several guarantee from Mr Leung and Miss Chan limited to £180,000 and a charge over reducing term life assurance for £180,000 over their individual lives.
In 1996 Miss Chan was contacted by the bank during a period when Mr Leung was away saying that a mortgage instalment had been missed. This caused her to realise that the house was still subject to a mortgage and that the amount of the loan, which was a charge on the property, was £360,000. Her evidence is that she told Mr Leung that he must pay off the mortgage because her interest in Hill House was her security for the future. She says that Mr Leung agreed to clear the charge, but persuaded her to agree to only half the mortgage loan being paid off so funds would be available to buy the investment property portfolio.
On 2nd July 1996, the remaining £180,000 deposit in Singapore was sent back to Bank of East Asia London to reduce the mortgage amount to £180,000.
The first investment property, 3 Grovenor Place, Woking, was bought on 20th December 1996 with a bank loan from Bank of East Asia secured on Hill House.
On 9th December 1996, Mr Leung and Miss Chan signed a guarantee to Bank of East Asia limited to $288,000 in place of the previous guarantee of $180,000. Three properties in Grovenor place were bought using a borrowing of £120,000 from Bank of East Asia secured on Hill House.
After the repayment of £180,000 of the mortgage loan in 1996, the purchase of Hill House had been financed by £40,000 joint monies from Wo Mei and Ho Chung, by the £180,000 remitted from Singapore in July 1996. The £140,000 balance of the £360,000 price and the expenses of purchase was financial from monthly repayments of the Bank of East Asia loan made to date and from the Bank of East Asia loan.
The original intention of the parties, as shown by the prison letters and the faxes from Mr Leung to Miss Chan in Guildford in May 1995, was that Hill House would be bought with monies realised from the Wo Mei and Ho Chung projects. The use of borrowing to complete the purchase of Hill House would have made it clear to Miss Chan that the original plan to use the joint monies from the Ho Chung and Wo Mei projects was not being fully implemented. Mr Leung's evidence makes it plain that his intention in arranging to borrow money to complete the purchase was to try to ensure that there was as little value as possible in Miss Chan's 51% interest in Hill House. I infer that he told Miss Chan that borrowing was necessary because monies from Wo Mei and Ho Chung were not available.
Had Wo Mei and Ho Chung monies been used to buy Hill House, Miss Chan's 51% share would have been almost entirely financed by her own money. In those circumstances, her 51% would have had real value. That is what she had been promised.
When Miss Chan insisted that the mortgage loan be reduced because her 51% was her security for the future, she was insisting that her 51% should be given the value it was originally intended to have; that is, it should not be subject to any mortgage between as between her and Mr Leung. Miss Chan says that Mr Leung persuaded her that the loan be reduced by only 50% so that there was money to buy investment properties. The reduction of the loan using the remaining £180,000 Singapore deposit did not release any money to buy investment properties. They were bought with bank loans, at least in some cases, with money remitted from Hong Kong by Mr Leung.
Mr Leung clearly wanted to retain a borrowing of £180,000. It was probably a continuing attempt to reduce the value of Miss Chan's interest in the event he decided to leave her. The position, therefore, is she wanted her share of the Wo Mei/Ho Chung monies invested in Hill House while he preferred to retain a reduced loan. The monies he used to reduce the loan, no doubt because they were conveniently available, came from the deposit which came from the loan from GoldFace, plus $550,000 of Mr Leung's own money. Because of Mr Leung's inadequate disclosure, the source of this $550,000 is unclear.
Except for the initial £40,000 used for the deposit, the Wo Mei and Ho Chung monies had not been used for Hill House; they remained in Hong Kong and Miss Chan has received none of her share. The intent was that Miss Chan's share of the Wo Mei and Ho Chung monies should go into Hill House. It was carried out in a different way simply for convenience. I find, therefore, that the £180,000 paid to reduce the loan is a payment to Miss Chan of her share of the Wo Mei and Ho Chung monies which she insisted should be used to reduce the mortgage loan to £180,000. £20,000 of her money had already been used to buy Hill House. Sufficient of the £180,000 to achieve a position in which she had paid 51% of the total cost of Hill House is to be treated as a contribution by her to the purchase of Hill House; any balance is a contribution by Mr Leung.
I have referred to the very late disclosure of documents by Mr Leung in response to an order to disclose the source of the relevant funds. That disclosure is inadequate. Issues were raised as to how the GoldFace loan was repaid. The disclosure shows a repayment of $800,000 in January 1997 which Mr Leung says is early repayment of a threemonth loan taken out in early December 1996 rather than repayment of the overdue one year loan taken out in June 1995. That seems unlikely. He says this because the $800,000 comes from the sale of a Wo Mei flat. I find this $800,000 repaid part of the HK $4 million GoldFace loan taken out in 1995. I accept Mr Leung's evidence that the balance of this loan was repaid in February 1997 from a loan from another bank.
The £360,000 was repayable by monthly instalments. Following the repayment of £180,000 and the August 1996 monthly repayment of £ 3,492.51 the balance owing was reduced to £166,888.28. It was reduced by further monthly repayments after that date but the details are not in evidence. The outstanding balance was repaid from the sale of the investment properties. The final payment was one of £78,939.95 in October 1999, which cleared the mortgage loan. Hill House is therefore free from mortgage.
This is a convenient moment to turn to the financial situation of Melodious. Since it held Hill House as trustee for Mr Leung and Miss Chan, Hill House is not an asset of Melodious. It is common ground that the investment properties were assets of Melodious. It bought nine properties for a total of £1,233,845, of which £842,236.10 came from bank loans. However, the figures are taken from the table provided by Miss Nicholson. I have noted some errors in that table but have not checked the entirety of it. The figures I cite are, therefore, subject to correction. £384,186.42 was provided by Mr Leung and £31,891.34 from Miss Chan. These loans funded the balance of the price and the expenses of purchase. The total of them is £1,268,313.86, which I take, for present purposes, to be the total cost of purchase including expenses.
The properties were sold for a total of £1,377,000, giving a profit of £108,687, subject to the costs of sale. I am told that a figure said to be about £250,000 is lying in a joint account from the proceeds of the sales and that the mortgage loan on Hill House, which I believe totalled in the end something of the order of £150,000, has been repaid. The mortgage loan was repaid, as I said, with monies from the sale of Melodious's assets and the amount involved is a debt from Mr Leung and Miss Chan to Melodious. It is a good debt. As between Mr Leung and Miss Chan, Miss Leung is responsible for paying this debt as Miss Chan has discharged her share of the mortgage debt with the £180,000 in July 1996.
I am told by counsel that the only creditors of Melodious are Mr Leung and Miss Chan for money provided to Melodious to buy properties. Mr Leung claims to have provided £394,366.68, but I have noticed an apparent error of £10,000, reducing it to £384,000 odd; Miss Chan says that she provided £31,891.34.
There is no uptodate accountant's report verifying these figures. The exact amount in the joint account is not in evidence. I am not satisfied that the figures for monies provided to the company by Mr Leung and Miss Chan are accurate. The company received significant rental income which appears to have been held by Miss Chan's solicitors. Mr Leung alleges that Miss Chan had received some of the company's rental income and should account to Melodious for it.
Mr Leung has issued a creditors' petition for the windingup of Melodious on the grounds it is insolvent and unable to pay its debts. Section 123(1)(e) of the Insolvency Act 1986 requires a petitioner to prove to the satisfaction of the court that the company is unable to pay its debts as they fall due. Section 122 gives the court some limited discretion. It says:
A company may be wound up by the court if it is unable to pay its debts.
Mr Leung has also issued a contributory's petition. He seeks the windingup of Melodious on the just and equitable ground, on the basis that Melodious was a quasi partnership, in the sense that it was a vehicle through which Mr Leung and Miss Chan might together acquire properties primarily for investment, that their participation was born of the natural affection and respect each had for the other at the time and that such relationship of affection and trust has irretrievably broken down.
Melodious was the vehicle by which Mr Leung and Miss Chan held investment properties. Section 125(2) of the Insolvency Act provides that a court should not make a winding up order on the just and equitable ground if some other remedy is available and the petitioner is acting unreasonably in seeking to have the company woundup instead of pursuing that other remedy.
The only people interested in Melodious as contributory or creditors appear to be Mr Leung and Miss Chan. The financial position between them can be sorted out in the main action, if necessary by taking an account. That is likely to be a quicker and cheaper means of resolving matters than the appointment of a liquidator, who will charge fees for finding out and checking what the parties to the action already know. There is no question of the assets having been sold at an undervalue. Mr Leung raises an issue that Miss Chan has had the benefit of rental income which should have been shared with him. That can be dealt with on any account, but I would hope that the parties might be able to agree most, if not all, of the figures.
An account in the action would be able to encompass all the financial issues between the parties. Mr Leung claims that the monies he provided for the purchase of Hill House were loans to Melodious. They were not. The initial £40,000 from which the deposit was paid was monies owned jointly by Mr Leung and Miss Chan and was paid to the solicitors acting for Miss Chan on 15th May 1995 before Melodious was acquired. Contracts appear to have been exchanged in the name of Melodious but Melodious contracted as trustee for Mr Leung and Miss Chan. The £40,000 came from the Wo Mei/Ho Chung monies and Hill House was being bought as the matrimonial home.
The payment of £180,000 in July 1996 from the Singapore deposit to reduce the Bank of East Asia mortgage loan reduced what was otherwise a debt of Melodious in law with a debt which Melodious could always have recovered from Hill House as trust property. It was in substance a liability of Mr Leung and Miss Chan. I have already found that this payment was a payment of Miss Chan's share of money from Wo Mei and Ho Chung to the extent necessary to reach the position where Miss Chan has contributed 51% of the overall costs of Hill House. It was not intended to be a loan to Melodious. It was money used by Miss Chan to reduce the mortgage debt.
The balance of the mortgage debt remained in place as between Miss Chan and Mr Leung. It is a borrowing to finance Mr Leung's interest in Hill House.
There remains the question of the mortgage payments. The mortgage debt had been reduced to the sum of £348,000 before the repayment of £ 180,000. Monthly payments continued to reduce the debt after that repayment.
The couple built an extension to Hill House. There is no evidence that the money to build this came via Melodious. Both parties claim to have contributed to it. Maybe they did. If they did, it cost £40,000. But that is not something a liquidator of Melodious can resolve. I do not have the material to resolve any issue that arises in relation to those monies.
I return therefore to the windingup petitions. I am not satisfied that Melodious is probably unable to pay its debts as they fall due. The figures are insufficiently clear and complete to enable me to be satisfied.
If I had been satisfied it is insolvent I would have declined to wind it up because Melodious is a company which is the vehicle for the investments made by Mr Leung and Miss Chan. It was a quasi partnership, and only Mr Leung and Miss Chan have any interest in it. No public purpose appears to be served by winding it up. As I have said, I am told by counsel that there are no outside creditors; there is no evidence it ever prepared accounts. The parties have put their case on the basis that Melodious was the beneficial owner of the investment properties, but I consider that to be doubtful. In these exceptional circumstances it is appropriate to exercise the limited discretion given by section 122 and to consider the question of windingup solely under the just and equitable ground.
I find that an account in this action is the appropriate remedy for the parties and that, now that all the properties have been sold and turned into cash, it is unreasonable to seek the windingup of Melodious. I therefore dismiss both petitions.
I turn, therefore, finally to the remedies sought by Miss Chan in the main action. These are an order under section 33(3) of the Family Law Act 1996 to enforce Miss Chan's entitlement to remain in occupation of Hill House and/or a declaration under section 33(4) of the Family Law Act 1996 or section 14 of the Trusts of Land and Appointment of Trustees Act 1996 as to the Claimant's beneficial interest in Hill House. I am told by counsel that there is no authority on the meaning or application of section 33 of the Family Law Act 1996 and that the debate in Parliament on section 33 was concerned merely with the question of one partner seeking to oust the other partner from the home.
Sections 14 and 15 of the Trusts of Land and Appointment of Trustees Act 1996 were considered by Neuberger J in Mortgage Corporation v. Share [2001] 1 FLR 973. I gratefully adopt his analysis of these two sections and his conclusion that the Trusts of Land and Appointment of Trustees Act has changed the law, that there no longer a presumption that land held on trust should be sold and the court should consider the question of sale in all the circumstances, including, in particular, the matters which the court is specifically required to take into account.
I must also consider the interrelationship between section 33 of the Family Law Act and sections 14 and 15 of the Trusts of Land and Appointment of Trustees Act. They are both relevant to the question of continued occupation of the home if the home is held on trust.
Where a court is addressing the question of occupation of a house subject to a trust or the alternative of sale, in my view the court should approach it primarily in the context of section 33 of the Family Law Act. It is in this Act that Parliament addresses the question of occupation of the home in most detail. The court is required by section 33(6) to have regard to all the circumstances. These will include the fact that it is a trust property, so that sections 14 and 15 apply to it. Accordingly, the matters specifically referred to in section 15 of the Trusts and Land and Appointment of Trustees Act and any other relevant consideration arising from the fact that it is a trust property, including the terms of the trust, should be taken into account by the court when considering the question of continued occupation or sale.
I will deal first with the application by Miss Chan for a declaration under section 14 as to her beneficial interest in Hill House. I have already dealt with that by holding that her beneficial interest is 51% of the property.
I turn, therefore, to the linked question of Miss Chan's continued occupation of Hill House and Mr Leung's application that it be sold and Miss Chan's occupation of it brought to an end. I begin by setting out the relevant provisions.
Section 33 of the Family Law Act 1996 reads as follows:
33.(1) If
(a) a person ('the person entitled')
(i) is entitled to occupy a dwellinghouse by virtue of a beneficial estate or interest or contract or by virtue of any enactment giving him the right to remain in occupation, or
(ii) has matrimonial home rights in relation to a dwellinghouse, and
(b) the dwellinghouse
(i) is or at any time has been the home of the person entitled and of another person with whom he is associated, or
(ii) was at any time intended by the person entitled and any such other person to be their home,
the person entitled may apply to the court for an order containing any of the provisions specified in subsections (3), (4) and (5).
(2) If an agreement to marry is terminated, no application under this section may be made by virtue of section 62(3)(e) by reference to that agreement after the end of the period of three years beginning with the day on which it is terminated.
(3) An order under this section may
(a) enforce the applicant's entitlement to remain in occupation as against the other person ('the respondent');
(b) require the respondent to permit the applicant to enter and remain in the dwellinghouse or part of the dwellinghouse;
(c) regulate the occupation of the dwellinghouse by either or both parties;
(d) if the respondent is entitled as mentioned in subsection (1)(a)(i), prohibit, suspend or restrict the exercise by him of his right to occupy the dwellinghouse;
(e) if the respondent has matrimonial home rights in relation to the dwellinghouse and the applicant is the other spouse, restrict or terminate those rights;
(f) require the respondent to leave the dwellinghouse or part of the dwellinghouse; or
(g) exclude the respondent from a defined area in which the dwellinghouse is included.
(4) An order under this section may declare that the applicant is entitled as mentioned in subsection (1)(a)(i) or has matrimonial home rights.
(5) If the applicant has matrimonial home rights and the respondent is the other spouse, an order under this section made during the marriage may provide that those rights are not brought to an end by
(a) the death of the other spouse; or
(b) the termination (otherwise than by death) of the marriage.
(6) In deciding whether to exercise its powers under subsection (3) and (if so) in what manner, the court shall have regard to all the circumstances including
(a) the housing needs and housing resources of each of the parties and of any relevant child;
(b) the financial resources of each of the parties;
(c) the likely effect of any order, or any decision by the court not to exercise its powers under subsection (3), on the health, safety or well being of the parties and of any relevant child; and
(d) the conduct of the parties in relation to each other and otherwise.
(7) If it appears to the court that the applicant or any relevant child is likely to suffer significant harm attributable to conduct of the respondent if an order under this section containing one or more of the provisions mentioned in subsection (3) is not made, the court shall make the order unless it appears to it that
(a) the respondent or any relevant child is likely to suffer significant harm if the order is made; and
(b) the harm likely to be suffered by the respondent or child in that event is as great as, or greater than, the harm attributable to conduct of the respondent which is likely to be suffered by the applicant or child if the order is not made.
(8) The court may exercise its powers under subsection (5) in any case where it considers that in all the circumstances it is just and reasonable to do so.
(9) An order under this section
(a) may not be made after the death of either of the parties mentioned in subsection (1); and
(b) except in the case of an order made by virtue of the subsection (5)(a), ceases to have effect on the death of either party.
(10) An order under this section may, in so far as it has continuing effect, be made for a specified period, until the occurrence of a specified event or until further order.
Sections 14 and 15 of the Trusts and Land and Appointment of Trustees Act reads as follows:
14 Applications for order
(1) Any person who is a trustee of land or has an interest in a property subject to a trust of land may make an application to the court for an order under this section.
(2) On an application for an order under this section the court may make any such order
(a) relating to the exercise by the trustees of any of their functions (including an order relieving them of any obligation to obtain the consent of, or to consult, any person in connection with the exercise of any of their functions), or
(b) declaring the nature or extent of a person's interest in property subject to the trust,
as the court thinks fit.
(3) The court may not under this section make any order as to the appointment or removal of trustees.
(4) The powers conferred on the court by this section are exercisable on an application whether it is made before or after the commencement of this Act.
15 Matters relevant to determining applications
(1) The matters to which the court is to have regard in determining application for an order under section 14 include
(a) the intentions of the person or persons (if any) who created the trust,
(b) the purposes for which the property subject to the trust is held,
(c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and
(d) the interests of any secured creditor of any beneficiary.
(2) In the case of an application relating to the exercise in relation to any land of the powers conferred on the trustees by section 13, the matters to which the court is to have regard also include the circumstances and wishes of each of the beneficiaries who is (or apart from any previous exercise by the trustees of those powers would be) entitled to occupy the land under section 12.
(3) In the case of any other application, other than one relating to the exercise of the power mentioned in section 6(2), the matters to which the court is to have regard also include the circumstances and wishes of any beneficiaries of full age and entitled to an interest in possession in property subject to the trust or (in case of dispute) of the majority (according to the value of their combined interests).
(4) This section does not apply to an application if section 335A of the Insolvency Act 1986 (which is inserted by Schedule 3 and relates to applications by a trustee of a bankrupt) applies to it.
The first question is whether Miss Chan and Mr Leung are entitled to occupy Hill House by virtue of a beneficial interest. Hill House was bought as their home. They lived there for about three years. I am satisfied that they are each entitled to occupy Hill House by virtue of being 51% or 49% beneficial owners, although Mr Leung has been denied the right to exercise his right of occupation by the nonmolestation order made against him in 1998.
Miss Nicholson argued that Miss Chan does not have a right to occupy Hill House because of section 12 of the Trusts of Land and Appointment of Trustees Act. This reads as follows:
12 The right to occupy
(1) a beneficiary who is beneficially entitled to an interest in possession in land subject to a trust of land is entitled by reason of his interest to occupy the land at any time if at that time
(a) the purposes of the trust include making the land available for his occupation (or for the occupation of beneficiaries of a class of which he is a member or of beneficiaries in general), or
(b) the land is held by the trustees so as to be so available.
(2) Subsection (1) does not confer on a beneficiary a right to occupy land if it is either unavailable or unsuitable for occupation by him.
(3) This section is subject to section 13.
She submitted that Hill House is unsuitable for occupation by Miss Chan because it is too large. It is a fourbedroom house and she occupies it on her own, save when she has guests to stay. In the past she has had lodgers. She could live comfortably in a smaller house; but "unsuitable" appears to connote something more than that. Subsection (2) is a provision which denies a beneficiary entitled to an interest in possession a right to occupy the land. In my view, "unsuitable for occupation" must mean something more than a house being unnecessarily large, particularly when coupled with "unavailable for occupation". I find, therefore, that Hill House is not "unsuitable for occupation" by Miss Chan.
Miss Nicholson submitted that the right of occupation conferred by section 12 of the Trust of Land and Appointment of Trustees Act supersedes for all purposes any right of occupation of trust land which may have existed prior to the Act. She argued that Miss Chan was, therefore, entitled to occupy Hill House, if at all, only by virtue of the Trusts of Land and Appointment of Trustee Act and she was, therefore, for the purposes of section 33(1), a person entitled to occupy a dwellinghouse by virtue of an enactment giving him the right to remain in occupation.
She referred to a paragraph in a Law Commission Working Paper to the effect that it was unclear whether a tenancy in common confers on beneficiaries, as against trustees, a right to occupy land. The footnote indicates that there is a decision that they have the right of occupation. The decision was noted with approval by Lord Wilberforce in the House of Lords. The only lack of clarity is apparently introduced by an article in the Conveyancer. This seems a slight basis for a contention that Parliament intended to replace common law rights of occupation with a new and exclusive statutory right of occupation. Moreover, section 12 is subject to section 13, which gives trustees the power to limit a beneficiary's occupation of trust land but requires them to have regard to the intention of the person creating the trust and the purposes of the trust. This indicates that the common law rights are still relevant.
When considering the question of occupation under section 33 of the Family Law Act or the sale of a house subject to a trust under section 14 of the Trust of Land and Appointment of Trustees Act, the combined effect of section 33 and section 15 is to require the court to consider certain specific factors as part of its consideration of all the circumstances. These are, under section 33(6)
(1) the housing needs and housing resources of each party and any relevant child. There is no relevant child here;
(2) the financial resources of each party;
(3) the likely effect of any order or a decision not to exercise the court's powers under section 33 on the health, safety or wellbeing of the parties; and
(4) the conduct of the parties in relation to each other and otherwise.
Under section 15 of the Trusts and Land and Appointment of Trustees Act, the court is required to consider:
(1) the intention of the persons who created the trust;
(2) the purposes for which the trust property is held;
(3) the interests of minor occupiers and secured creditors none of whom feature in this case;
(4) the circumstances and wishes of any beneficiaries of full age, or, in the event of dispute, of those beneficiaries constituting a majority in terms of value. This is the factor identified in section 15(3), and I adopt the reasons of Neuberger J in Mortgage Corporation v. Share as the interpretation of section 15(3).
I will take the relevant factors in turn.
Miss Chan is studying in England and needs a house in England. Hill House is her only home. Mr Leung has at least three properties in Hong Kong and there is no evidence that he needs a house in England.
Miss Chan's only income is a small wage, about £4,000 a year, from a parttime job as a waitress. By the terms of her student visa, she is precluded from working more than fifteen hours per week. Otherwise she has paid fees and living expenses with money provided by her family or from the sale of jewellery. Mr Leung has lost a lot of money gambling. He has not given any evidence as to his financial position, save that he still owns three units in the Ho Chung development. I find that although less rich than he was, he is still a comparatively rich man and much richer than Miss Chan.
Health and safety are not considerations in this case. I construe " wellbeing" as a wide term, covering both quality of life and the financial position of each party. If I order that Miss Chan is to remain in occupation of Hill House, she will be able to continue her studies without the disruption of moving house. On the other hand, the money paid out by Mr Leung to provide a home for Miss Chan and himself will remain locked up in Hill House for longer. Conversely, if I bring Miss Chan's occupation to an end, Mr Leung will get his money sooner but Miss Chan's life will be disrupted.
Mr Leung is prevented from exercising his right of occupation because of a nonmolestation order. That order was made because of his conduct towards Miss Chan. His exclusion derives from that conduct. Mr Leung, on his own admission, persuaded Miss Chan to live with him in Hill House by promising to marry her when he had no firm intention of doing so. Looking at his conduct as a whole, I find that he had no real intention of marrying her. He deceived Miss Chan into living with him in a sexual relationship.
When Mr Leung and Miss Chan created the trust, they intended that Hill House should be their joint home. The giving of 51% to Miss Chan and the express promise that the house would not be sold without the consent of both parties shows it was also their intention that Hill House would provide a house for one of them if their relationship ended.
The purpose of the trust includes a purpose to provide a home for Miss Chan now that the relationship has ended.
Miss Chan, with 51%, constitutes the majority of the beneficiaries in terms of value. She wishes to remain in occupation.
(a) Miss Chan is in the United Kingdom on a student visa. Her right to stay and her need for a house here will end with her period of study.
(b) Secondly, the parties have fallen out and it is desirable that there should be a clean break sooner rather than later. A clean break is not possible so long as Mr Leung retains an interest in the home where Miss Chan lives.
(c) Thirdly, because of her low income Miss Chan has been unable to maintain Hill House. It has become, in her own words, in considerable disrepair.
(d) Fourthly, Hill House is unnecessarily large for a single student. I am told it is worth in the region of £600,000. With her share of about £300,000, if Hill House were sold, Miss Chan could buy another suitable property.
(e) Lastly, Mr Leung has enjoyed the use of Miss Chan's share of the Wo Mei and Ho Chung projects, even after the payment of the £200,000 of her share invested in Hill House. This is relevant when considering the financial aspects of this matter.
To summarise, the factors favouring Miss Chan's continuing occupation of Hill House are her need for a house here; her relative poverty; the disruption of her studies by a sale; Mr Leung's conduct; the intention of the parties that Hill House would be a home for one of them if the relationship ended; and Miss Chan's wish as majority beneficiary.
Factors favouring a sale of the property are to enable Mr Leung to get his share of the money tied up in Hill House, though this factor is nullified by the fact that Mr Leung has the use of Miss Chan's remaining share of the Hong Kong developments; when Miss Chan finishes her studies her visa will expire and she will have no need for a house; the desirability for a clean break; the deteriorating condition of Hill House; the fact that Hill House is unnecessarily large for Miss Chan; and that with her share of the proceeds of sale of Hill House Miss Chan could buy a suitable alternative property.
Where the parties have expressly agreed what is to happen if they split, the court should be slow to interfere with that arrangement and should not do so merely because one party no longer likes it. Here, there are factors favouring continued occupation by Miss Chan. But the factors in favour of a sale include matters, such as the considerable deterioration of property and the effect on its value and the benefit of a clean break, which benefit Miss Chan as much as Mr Leung.
The determinative factor in my mind is this case is that Miss Chan's need for a house, and indeed her right to live here, will come to an end when her studies come to an end. The end of her current course appears to me to be an appropriate time for the house to be sold. It may be that Miss Chan will want to embark on further studies, but that is too speculative. The factors in favour of a sale fairly soon outweigh catering for that possibility.
I will make an order, therefore, under section 33 of the Family Law Act 1996 that Miss Chan is entitled to remain in occupation of Hill House and Mr Leung is excluded from occupation until the house is sold. I will make an order under section 14 of the Trusts of Land and Appointment of Trustees Act for the sale of the house. The house is not to be put on the market, unless Miss Chan wants to sell it earlier, until Miss Chan has completed her current course of studies. She is to continue to occupy it without the disruption of a sale until then. I will discuss the exact form of the order with counsel.
There remains the question whether Miss Chan should pay anything for her occupation of Hill House, in effect for her use of Mr Leung's share of the property. I have held that most, if not all, of the £180,000 paid in July 1996 represents part of Miss Chan's share of the Wo Mei and Ho Chung projects. In addition, she has had her share of the £40,000 used for the deposit. Miss Chan's share of the cost of Hill House in terms of Hong Kong dollars is in the region of Hong Kong $2.25 million. I am satisfied from the various figures in evidence that her share of Wo Mei/Ho Chung is considerably more than that. Mr Leung's lack of disclosure prevents me from establishing an exact figure. I conclude, on the material I have, that Mr Leung has had the use of as much as Miss Chan's money as he has invested in the house. It is not appropriate, therefore, for her to pay anything for her occupation of the property.